Direct Evidence on the Market-Driven Acquisitions Theory

57 Pages Posted: 16 Apr 2003

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

Yingmei Cheng

Florida State University - College of Business

Date Written: March 2003

Abstract

We provide direct empirical evidence that stocks' overvaluation is an important motive for firms to make acquisitions with their stocks, supporting the market driven acquisition theory (Shleifer and Vishny, 2002). Overvaluation increases the probability of firms becoming acquirers and the probability of using their own stocks as the medium of exchange. Once overvaluations of the combined firms are taken into account, the merged firms do not fare worse than their matches. Compared to their matches before the merger announcement, the original acquirers' shareholders do not lose; instead long-term target shareholders are the losers if they do not exit around the merger dates.

Keywords: Market-driven acquisitions theory; acquirers and targets; post-merger long-term return

JEL Classification: G34, G14

Suggested Citation

Ang, James S. and Cheng, Yingmei, Direct Evidence on the Market-Driven Acquisitions Theory (March 2003). Available at SSRN: https://ssrn.com/abstract=391569 or http://dx.doi.org/10.2139/ssrn.391569

James S. Ang (Contact Author)

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Yingmei Cheng

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-7869 (Phone)

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